‘The ongoing disruption in China, caused by the coronavirus, due to travel restrictions and office closures, is having some impact on sales in that country’, the UK’s second largest technology company by market value said today.
Investors appear to have been spooked by the potential threat, sending shares in AVEVA more than 3.5% lower to £51, making the stock the third worst performing on the FTSE 100 on Thursday. But how bad could the hit be?
CHINA REVENUE SHARE
‘We note the caution on China and leave forecasts unchanged’, said George O’Connor today, the technology analyst at broker Stifel.
Numis’ Will Wallace added extra detail. ‘With China at only about 5% of group sales, we estimate that the impact on full year revenues from a weak fourth quarter in China can at most be only about 1%’, the analyst said.
Consensus forecasts for the year to 31 March 2020 call for £207.8m of pre-tax profit on £842.6m of revenue. This would imply earnings per share of 41.6p, implying a price to earnings multiple in excess of 122.
AVEVA reported a 10 month growth rate of ‘high single digits’, below the 11.9% reported for the first half, although this reflects the previously announced pull-forward of a large contract from the third quarter into the first six month period.
STOCK MARKET STAR
AVEVA was one of the stock market’s best performing stocks in 2019, rallying more than 90% last year. The shares have added another 9%-plus so far in 2020.
Investors really embraced the compelling power of AVEVA’s industrial engineering software potential and stopped quibbling about the value of the shares during 2019. AVEVA is bringing disruptive technology to an engineering industry that is finally starting to embrace digitisation because of the obvious creativity and cost efficiency benefits.
No-one wants to risk spending millions building a potentially flawed ship, oil rig, power plant or plane when the design can be tested in virtual reality in almost every way beforehand.
AVEVA was valued at more than £8.25bn following today’s share price decline, narrowly below the £8.53bn value of enterprise accounting software firm Sage (SGE).